2018: year of outstanding financial and industrial results achieved thanks to the fast implementation of our strategy.
The key contributing factors were successful exploration combined with a “dual exploration” strategy for early monitisation of discoveries, efficient operations with optimised time-to-market of the hydrocarbon reserves, a lower breakeven point for the downstream business and financial discipline as regards spending.
Letter to shareholders
The optimization of existing portfolio, the geographical diversification strategy and the improved balance of assets portfolio along the value chain through a robust growth in the Middle East, together with our commitment in promoting local development, in environmental protection and in fostering Eni’s expertise and technologies enabled Eni to seize synergies and growth opportunities.
Public-private partnerships started-up in 2018 will enable us to share resources, know-how and expertise with the United Nations Development Programme (UNDP) for sustainable development and to aim at achieving SDGs, in particular the universal access to energy by 2030, the actions to combat climate changes and the protection, restoration and sustainable use of the earth’s ecosystem and with the Food and Agricultural Organization (FAO) for clean and safe water access in Nigeria.
Synergies within our businesses have been optimized and our commitment at empowering local communities and at preserving the environment has become a driver of our business model. At the core of our progress are our intangible assets: technologies, skills and know-how.
Leveraging on these drivers, we have built a new Eni based on efficiency, integration, deployment of new technologies and an optimized asset portfolio. With a view to the future we strengthened and geographically diversified our upstream portfolio, expanding our growth prospects with the building of a significant presence in the Middle East, while keeping costs low and maintaining a high level of profitability by means of the creation of a strategic equity-accounted joint venture with the ADNOC oil State company in Abu Dhabi.
In these years, exploration was at the core of our growth and cash generation. For the fourth consecutive year, Eni has been nominated best exploration company in the oil business. This demonstrates the excellence of our discoveries and the effectiveness of the dual exploration model, whereby Eni has elected to acquire high working interest in exploration leases to achieve fast monetization of the discovered resources through the dilution of participation interests, while retaining operatorship. Since 2013, the dual exploration model allowed us to cash in approximately $10 billion mainly by diluting Eni’s interest in the giant gas projects Zohr in Egypt and Area 4 in Mozambique. Leveraging the dual exploration model, a number of strategic partnerships have been signed as well as the agreements signed in March 2018 to divest a 10% interest in the Zohr field and the concurrent acquisition of interests in the producing concession agreements Lower Zakum (5%) and Umm Shaif and Nasr (10%) located offshore the United Arab Emirates (UAE).
Climate change is a pillar of our industrial strategies and is also factored in the evaluation of our projects which have to be sustainable also in a low carbon scenario. Progress achieved so far in the evolution of our business model is based on a clear decarbonization strategy focused on a constant commitment to achieving increasing operational efficiency and finding innovative and technological solutions to foster energy transition and reduce emissions, thus also leveraging projects of circular economy and carbon offset.
Our financial results for 2018 were excellent. Adjusted operating profit was €11.24 billion and adjusted net profit €4.58 billion, 10 LETTER TO SHAREHOLDERS both almost doubled compared to 2017, supported by a better trading environment with Brent prices increasing by 31% , which showed the ability of our business model to create extra-value in a favorable market scenario. The drivers of these results were the robust performance of the E&P segment (up by 110%) and the recovery in the G&P (up by 154%). Also the downstream oil and chemical businesses reported a positive contribution notwithstanding a challenging trading environment. At the Brent price scenario of 71 $/barrel, in 2018 cash flow from operations was €13.45 billion. Other positive cash flows were associated with positive changes in receivables and payables associated with investing activities (mainly including the cash-in of the deferred price of the Zohr disposals made in 2017), which amounted to €0.9 billion. These inflows funded the reassessed amount of capital expenditures of €7.94 billion and the dividend of €2.95 billion, leaving a surplus of around €3.5 billion. Net borrowings reduced to €8.3 billion with a leverage of 16%, seven percentage points lower than in 2017; return on average capital employed almost doubled to 8.5% (compared to 4.7%).
|Net sales from operations||(€ million)||75,822||66,919||55,762|
|Operating profit (loss)||9,983||8,012||2,157|
|Adjusted operating profit (loss)(a)||11,240||5,803||2,315|
|Adjusted net profit (loss)(a)(b)||4,583||2,379||(340)|
|Net profit (loss)(b)||4,126||3,374||(1,051)|
|Net profit (loss) - discontinued operations(b)||(413)|
|Group net profit (loss)(b) (continuing and discontinued operations)||4,126||3,374||(1,464)|
|Net cash flow from operating activities||13,647||10,117||7,673|
|of which: exploration||463||442||417|
|development of hydrocarbon reserves||6,506||7,236||7,770|
|Dividend to Eni’s shareholders pertaining to the year(c)||2,989||2,881||2,881|
|Cash dividend to Eni’s shareholders||2,954||2,880||2,881|
|Total assets at year end||118,373||114,928||124,545|
|Shareholders’ equity including non-controlling interests at year end||51,073||48,079||53,086|
|Net borrowings at year end||8,289||10,916||14,776|
|Net capital employed at year end||59,362||58,995||67,862|
|of which: Exploration & Production||50,358||49,801||57,910|
|Gas & Power||3,143||3,394||4,100|
|Refining & Marketing and Chemicals||7,371||7,440||6,981|
|Share price at year end||(€)||13.8||13.8||15.5|
|Weighted average number of shares outstanding||(million)||3,601.1||3,601.1||3,601.1|
|Market capitalization(d)||(€ billion)||50||50||56|
|a) Non-GAAP measures.
b) Attributable to Eni’s shareholders.
c) The amount of dividend for the year 2018 is based on the Board’s proposal.
d) Number of outstanding shares by reference price at year end.